ACC 406

INTERMEDIATE FINANCIAL
ACCOUNTING AND REPORTING

Chapter 1:
Introduction to Accounting

Prepared by:
Afaf Izzati Nafhah binti Radzi
2 Learning objectives
At the end of this chapter, you should be able to:

Explain difference terms and basic concepts of

financial accounting
Identify the users of accounting information
Distinguish the different types of business
organization
Differentiate between bookkeeping and accounting
 Definition of Accounting

Accounting is a process of recording,

classifying and reporting financial information
to the relevant users of accounting information
in a business organization.
 Accounting Process
• Involves entering the transactions into accounting records.

• Its start with extracting the relevant information from sources documents
Recording such as invoices and official receipts.

• Then, the data or transactions have to be sorted out or classified into

various categories, namely assets, liabilities, capital, revenue and expenses.
Classifying

• Involves process of extracting and communicating information by way of

financial statements.

Reporting • Enable user to answer question like;

• What is the amount of assets owned by the business?
 Accounting Process

Business Business Accountant/

Entity Transactions Bookeeper

Process

Analyze,
Record,
Summarize,
Review
Final Report
 Functions of Accounting

Keeping track of
Obtain detailed info about
routine business
a particular transaction
activities

Evaluating the efficiency and

performance of various Maintaining documentary evidence of the
departments within the company’s business activities
organisation
 Owner
Management

Creditors/Bankers

Users of the
Financial Statement Government

Employees Potential Investors

 1. Owners:
Interested in profit earned
from investments, financial
stability & growth of
business

2. Management:
Internal As a guidance in planning,
organizing and controlling
Users the operation

3. Employees:
Interested in business
ability to progress and
expand (focus on employee
benefit)
 1. Creditors/ Bankers:
To know the ability of the
business in repaying the
amount owed to them
External
Users

2. Government:
Tax purposes
Government
How much tax they are going
to pay us???
 3. Potential Investors:
Evaluate future earning capacity
on their investment
 Types and various forms of Business
Basis Sole Proprietorship Partnership Company
Ownership Business owned by one Business owned by two Business owned by
person (2) to twenty (20) people two or more people
(minimum 2)
Incorporation Register with the The basic agreement in Register with the
Registrar of Business in the partnership are Malaysian Companies
the Companies outlined in the Partnership Formed under the
Commission of Act 1966 or have on Companies Act 1965
Malaysia (CCM) agreement
Control Full control SHARED by Partners SHARED by
Shareholders
Profit/Loss Full Entitlement SHARED among the SHARED among the
Partners Shareholders
Liability Unlimited liability Unlimited liability Limited Liability

Life Limited life Limited life Unlimited life

 12 EXAMPLES

Sole Proprietorship Partnership Company: Private Company: Public

Limited Limited

 Kedai Runcit  Usually in  Syarikat Amran  Zuhairi Bhd

Pak Ali professional area, Sdn. Bhd.  Bank Islam
for medical or law Malaysia Bhd.
Poliklinik Dr
Azhar dan Rakan-
Rakan
Difference between bookkeeping and
accounting

Bookkeeping involves only the recording of economic events

and is therefore just one part of accounting process

Accounting involves the entire process of identification,

measurement, recording and communication

The bookkeeping function is often performed by individuals

with limited skills in accounting
THANK YOU